Essar Steel India Ltd. has encountered a series of obstacles that have postponed its debt resolution under the Insolvency and Bankruptcy Code (IBC). This article delves into the reasons behind these delays, the status of the cases, and compares the effectiveness of IBC with other recovery methods. It also offers suggestions for a more effective implementation.
Resolution Process under IBC
The IBC mandates a corporate insolvency resolution process (CIRP) to be completed within a span of 180 days. In specific circumstances, this procedure can be extended by another 90 days, extending the maximum period to 270 days.
Status as of March 2019
By 31st March 2019, from a total of 1143 ongoing resolution cases under the IBC, 548 cases had surpassed the pre-decided 180-day deadline.
Causes for Delays in Resolution Process
Several factors contribute to the delay in the resolution process under the IBC. The National Company Law Tribunal (NCLT) and the appellate tribunals have been burdened with matters concerning the Companies Act and Competition Act, alongside the IBC.
Additionally, there is a limited number of Information Utilities (IUs) within the system. These entities provide access to reliable and transparent evidence of default which aids in speeding up the process of establishing a default for initiating the resolution process. Presently, National eGovernance Services Ltd is the only registered information utility with the Insolvency and Bankruptcy Board of India (IBBI), having registered in September 2017.
Other factors behind delayed resolutions include inadequate takeover bids for companies, disagreements among lenders, and legal issues raised by existing promoters and operational creditors.
| Number of Ongoing Cases | Date | Cases Exceeding Deadline |
|---|---|---|
| 1143 | 31st March 2019 | 548 |
IBC vs DRT/SARFAESI
In terms of recovery rates, financial creditors have witnessed a 43% recovery rate under the IBC resolution process compared to less than a 20% recovery rate with substantial delays under the existing regime of Debt Recovery Tribunal/Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (DRT/SARFAESI).
Suggestions for Improvement
Several improvements can be suggested for smoother functioning and implementation of the IBC. These include digitising the NCLT platform, proactive training/onboarding of judges, lawyers, and other intermediaries.
Additionally, pre-packed insolvency arrangements, which allow the sale of a business subject to the approval of a majority of the creditors prior to appointing an administrator or insolvency professional, could be a viable option.